About £191 billion was borrowed in 2017 alone. Long-term loans are lucrative for big businesses, while individuals mostly desire short-term loans. However, small businesses also access short-term loans. Short-term loans are desirable due to their lack of security and speed of approval. But these loans vary when it comes to terms and rates of interest. They generally charge a higher rate of interest than long-term loans due to lack of security. Here are the three best options for short-term loans.
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Bank Overdraft
Many building societies and banks offer bank overdrafts. This means that you will be able to withdraw a specific amount of money after your balance reaches zero. While some banks will charge a zero per cent interest rate, others will charge high-interest rates. Hence, be sure to confirm the terms and conditions before taking an overdraft facility.
Bank overdrafts that are free from interest can be used for one year after the opening of the account. They don’t have minimum monthly repayments, and one needs to be careful to avoid having too much overdraft balance. Keep in mind that the zero interest rate applies to the introductory period only, after which you might be charged a high-interest rate.
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Credit Cards
Credit cards are the most popular forms of short-term loans. Most of the banks offer credit cards, and you can get one at any of them. Some cards will even offer zero per cent on all purchases as an introductory offer. Some cards have an introductory period of up to 27 months, meaning that you can borrow money for free for slightly over two years. But this is given that you repay on time. Take care because some of these cards will hike the interest up to 20 per cent after the introductory offer ends.
However, be sure to get the ones with the lowest rate of interest. The majority of the cards have a minimal interest rate of 2 per cent per month on the outstanding balance.
The credit limit can reach up to £5,000. But the amount varies among different people.
Credit cards are only available to you if you have good credit. Good credit history means that you repay your loans on time. If you don’t, you may be rejected.
You can get credit building cards to help restore good credit. You will be spending small amounts of money each month and repaying on time. Repayment will be at the month’s end, and interest rates are low. If you have a consistent income, this is a great way to rebuild your credit.
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Flexible Loans
If you want to borrow a lot of money and repay within a short period, flexible loans are ideal. You can take out a larger sum that would not be possible in the case of overdrafts or credit cards. Repayments are flexible since you can repay more money than the required without incurring a penalty. This allows for faster loan clearing.
To get a flexible loan, you will need to have a consistent income and good credit. Also, its interest rate, which is between 5 and 18 per cent, is higher than that of an overdraft or credit card. And it is harder to get than the latter two.
How to Get a Short-term Loan if You Have a Bad Credit
How do you get bad credit? You can get a poor credit score if you pay your loans late or fail to pay them at all. Some other circumstances that can affect your credit include bankruptcies, legal judgements against you, or tax liens. You can get a short-term loan if you have bad credit by applying for these four options.
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Social Fund Budgeting Loans
Budgeting loans from the Social Fund are normally free from interest. You can access the facility regardless of your credit status.
Alternatives are available from England’s local authorities as well as Welsh and Scottish governments.
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Credit Unions
Credit unions refer to non-profits that have been created to assist people with a common interest, like working for one company or living in the same community. You can get a credit union short-term loan by looking for a credit union near you.
Interest rates charged by credit unions have a cap of 42.6 per cent per year or 3 per cent per month. If you are in Northern Ireland, the interest rate cap is 1 per cent per month.
However, before getting a loan with the majority of credit unions, saving for some time is a requirement. Also, in case you want to repay the loan early, you won’t experience hidden charges.
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Online Lenders
Numerous online lending options can offer you access to short-term loans even though you have bad credit. For instance, peer-to-peer lending services will allow you to escape a lot of requirements that are mandated by banks as you will be borrowing from individuals. Individuals are more willing to take the risk than brick and motor financial institutions.
Other non-bank lenders are more willing to take the risk of a borrower with bad credit. These institutions will get funds from peer-to-peer lenders and other sources. However, payday loans have a very high-interest rate and are not recommended.
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Guarantor Loan
If you have a poor credit score, guarantor loans are perfect for you. You only need to ask a friend or family member, who has a better credit rating than you, to co-sign the loan agreement. This third party is referred to as the guarantor.
The benefit of a guarantor loan is that you can get a low-interest loan or a higher amount than you could have received through traditional means.
What’s the Take-away?
Getting approved for a short-term loan is a fast process, which can also translate into a bad credit if you make late repayments. The best way to access a bank overdraft, flexible loan, or credit card, is by maintaining good credit. But if you have bad credit, you can still apply for a guarantor loan, online loan, social fund budgeting loan, or credit union.
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